Secret Offshore Money Fuels Miami's Luxury Real Estate Boom

By
Law Offices of Paul D. Petruzzi PA
|April 11, 2016

A recent Miami Herald news article detailed the discovery of thousands
of documents of off-shore companies, known as “shell companies,”
that were being used to buy luxury real estate while disguising the identity
of the true owners and the source of their assets. These types of companies
are currently legal.

At the end of 2011, a company called Isaias 21 Property paid nearly $3
million in cash for an ocean front Bal Harbour condo. In public records,
Isaias 21 listed its headquarters as a Miami Beach law office and its
manager as Mateus 5 International Holding, an offshore company registered
in the British Virgin Islands, where company owners don’t have to
reveal their names.

Many confidential files from inside a secretive Panamanian law firm called
Mossack Fonseca were recently uncovered. The leak has been called the “Panama Papers.” The owner of the Bal Harbor Condo was identified as Paulo Octávio,
a resigned governor of Brasília after being accused of corruption in 2011.

The law firm of Mossack Fonseca specializes in creating offshore shell
companies for the world’s richest and most powerful people. These
leaked records offer a glimpse into the tightly guarded world of high-end
South Florida real estate.

This leak comes as the U.S. government unleashes an unprecedented
crackdown on money laundering in Miami’s luxury real-estate market. A former
drug enforcement agent states, “The guys who want to clean up dirty
money are always going to try to penetrate the system at its weakest spot.”
“You’ve got so much real estate being bought and sold in South
Florida. It’s easy to hide in plain sight.”

Recently, the U.S. Treasury Department became concerned about criminals
laundering dirty money through Miami-Dade County real estate, and in March,
it started
tracking the kind of transactions most vulnerable to manipulation: shell companies
buying homes for at least $1 million using cash. These deals are considered
suspicious because 1) the real buyers can hide behind shell companies
and 2) banks aren’t involved in cash transactions, circumventing
any checks for money laundering.

Since Miami has a long history of money laundering, its financial institutions
report more suspicious activity than any other major U.S. city besides
New York City and Los Angeles.

Foreign nationals bought nearly $6.1 billion worth of homes in Miami-Dade,
Broward, and Palm Beach counties last year, more than a third of all local
home spending, according to the Miami Association of Realtors.

Owning U.S. property through offshore companies is popular with foreign
nationals because it allows them to claim significant breaks on their
estate taxes. However, offshores are also useful for shifting money around
beyond the reach of regulators and tax authorities.

Convicted money launderer Alvaro López Tardón bought a $1
million condo at the Continuum in South Beach. A federal judge in Miami
sentenced the accused Spanish drug lord to 150 years in prison for money
laundering. The judge said South Florida is awash in “funny money.”

Prosecutors argued that he was laundering profits from a lucrative cocaine-smuggling
business. They said he had been the leader of a violent drug ring called
Los Miami and
seized his assets, including a fleet of luxury cars and 13 condos, after he was found guilty
of money laundering.

The judge was quoted saying, “I call it funny money, and we have
a plethora of funny money here,” U.S. District Judge Joan Lenard
said during his sentencing hearing in 2014.

Federal authorities are certainly watching these activities. In 2001, the
USA Patriot Act mandated that all parties involved in real-estate closings
perform due diligence on their clients. Lobbying from the industry won
a temporary exemption that has been in place for nearly 15 years. The
American Bar Association has also
opposed stronger disclosure requirements for real-estate lawyers, saying they
would violate attorney-client privilege.

However, a new federal initiative centering on Miami-Dade may be the first
sign that the exemption is ending. Between the federal crackdown on secret
cash home deals and
strengthening anti-money-laundering rules around the world, it may grow harder to pump dirty cash through Miami real estate.

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